How Russian invasion of Ukraine could impact ocean shipping

Ukraine is on a knife’s edge. Russian troops are amassed at its border. The U.S., EU and U.K. warn of severe consequences if Russia attacks, which the U.S. believes could happen at any moment. How could a Russian invasion impact ocean shipping?

Spiking fuel costs

The first potential consequence, which would affect all shipping segments, would be higher fuel costs. The price of marine bunker fuel follows the price of Brent crude.

“With the clear potential for an invasion of Ukraine, this would only further exacerbate any perceived squeeze on oil markets,” said Maritime Strategies International in its January tanker outlook, adding, “Such geopolitical volatility typically pushes up prices.”

If Russian exports are targeted by sanctions, the oil price effect could be extreme. “The major impact of any sanctions on Russia’s exports would be soaring crude prices, which could potentially exceed $100 per barrel,” wrote Alphatanker in a recent report. (Alphatanker was subsequently rebranded BRS Tanker.)

JP Morgan cautioned on Friday that oil prices could rise as high as $150 per barrel.

If there are sanctions, wrote Poten & Partners in a report on Friday, “Oil prices will skyrocket in the short term because Russia is such a big producer and the oil markets are already quite tight.”

Rising fuel prices are a negative for tanker and dry bulk spot rate indexes. For container lines, fuel is one of the largest costs but is ultimately passed along to cargo shippers via bunker adjustment factor surcharges.

The Ukraine crisis comes at a time when marine fuel costs are already historically high.

The Ship & Bunker price for 0.5% sulfur fuel known as very low sulfur fuel oil (VLSFO) hit an all-time peak of $694.50 per ton on Thursday. That was even higher than in January 2020 when the price of VLSFO was artificially inflated by the transition to low-sulfur fuel during implementation of the IMO 2020 fuel rule.

Prior to 2020, ships burned 3.5% sulfur fuel known as high sulfur fuel oil (HSFO). According to Ship & Bunker historical data, the last time HSFO was as expensive as VLSFO is today was in May 2012, almost a decade ago.